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The Endless Bubble Of Overblown Expectations

In the spring of 2007, when the Icelandic financial bubble was reaching its peak, the Ministry of Industry held a press conference to announce it intended to undertake an environmental impact assessment of oil exploration off the coast of Northeast Iceland, near the Jan-Mayen ridge. The press was quick to see what this meant: Untold riches!

“Oil exploration might begin next summer,” the headlines read, and many Icelanders, who had already started to believe the country was on its way to becoming a North Atlantic Switzerland could now fantasize about living in an Arctic Saudi Arabia.

Although there was no oil exploration that following summer, Icelanders did not give up hope. The dream of finding oil only became more pressing as the Icelandic financial miracle came crashing down in 2008. Over the following years many Icelanders therefore just transferred their dreams of prosperity from one get-rich scheme after another.

A string of get-rich schemes

The financial miracle and the oil adventure are only examples of what is perhaps one of the most striking characteristics of recent Icelandic economic history: the dream of hitting the jackpot, or of some fabulous scheme that will solve all our problems in one fell swoop.

Thus, Icelandic authorities and businessmen have poured money into failed investments, risking everything on pie-in-the-sky plans while frequently neglecting less exciting options. In the 1980s, for instance, it was salmon and fur farming, and when that didn’t pan out people transferred their hopes to various energy-intensive industries, including aluminum smelters or oil refineries. Then, after the turn of the century, it was financial services, and finally oil exploration.

This Powerball approach to economic policy goes a long way to explain the Icelandic business cycle, which has been characterized by extreme investment booms (and busts) that have accompanied the chase after the ‘next big thing’.

It is easy to explain this tendency by referring to the Icelandic national character: As a nation of fishermen, Icelanders are simply always waiting for the big catch. Or one could go further back in history, and blame the Vikings and their quest for plunder in a wealthy unprotected English monastery. However, it makes more sense to look to politics, as it is the political class that has done most to create and maintain these expectations.

One way to get elected in Iceland, not unlike in other countries, is to claim to be a “rainmaker”: Vote for me, and I will bring about an economic windfall for the district. When in office these politicians have used their power to make their promises come true, facilitating investments and pouring subsidized capital and government funds into whatever plan they had sold to voters.

Reykjavík vs. the rest

These promises have another important feature, namely, that they tend to be promoted by rural politicians, that is, representatives of districts outside the densely populated southwest corner of the country. As such, the various get-rich schemes have been offered as a way to balance the scales between Reykjavík and the rest of the country. When silencing critics, balanced growth and regional development have also served as powerful trump cards.

Salmon or fur farming were supposed to breathe life into the rural economy while energy-intensive industries have been promoted as the surest way to anchor regional development. In this long tradition, the long awaited oil adventure was supposed to boost the economy of Northeast Iceland, reversing its slow depopulation. This was the failed goal of the last ”sure” things: The aluminum smelter in Reyðarfjörður and the associated Kárahnjúkar hydro-electric plant.

The rural districts and smaller urban centers have been waiting for their jackpot ever since Reykjavík received its most important boost: The arrival of the English and later the Americans in WWII. The troops doubled the population of the city, creating a building boom and an insatiable demand for labour that greatly sped up the migration of people from the countryside. This in turn led to very lopsided economic development, which remains an issue to this day.

The oil adventure is over

But now it seems their most recent hope of striking it rich by finding oil has been dashed, as a recent report by Citigroup has predicted that future oil price developments will not justify expensive deep-sea drilling in remote and inaccessible arctic waters like the middle of the North Atlantic. At least, the Icelandic oil adventure seems further off now as oil exploration has been halted off the coast of Greenland and Shell shelved its plans for massive investment in drilling and exploration north of Alaska.

You can rest assured though, Icelandic politicians have already found the next big thing: Iceland will become a global transit hub for freight traffic once the Arctic ice sheet melts. Perhaps that will pan out fabulously.

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Huh? What’s the deal with that picture?

Photographer Hörður Sveinsson shot this article’s feature image for the cover of our March 2009 issue. The feature story (“Grapevine Exposes Sordid ‘Music Trip’ To Scandinavia’s Sodom“) revolves around two then-hot young bands, Hjaltalín and Retro Stefson, and hot young composer Ólafur Arnalds, and their journey to play the annual By:Larm music showcase in Oslo. Note that quite a few of the people in the image were underage at the time it was shot (Retro Stefson’s Logi is only 17!) and that the drugs and alcohol depicted are totally fake and not real in any way.

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